The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Risk

  • Mark J. Machina
  • Michael Rothschild
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_1728

Abstract

The phenomenon of risk plays a pervasive role in economics. Without it, financial and capital markets would consist of the exchange of a single instrument each period, the communications industry would cease to exist, and the profession of investment banking would reduce to simple accounting. One need but consult the contents of any recent economics journal to see how the recognition of risk has influenced current research in the discipline. This article presents an overview of the modern economic theory of the characterization of risk and the modelling of economic agents’ responses to it.

Keywords

Capital asset pricing model Expected utility hypothesis Mean-standard deviation Portfolio theory Probabilistic sophistication hypothesis Probability distribution Riemann–Stieltjes integral Risk Risk aversion Risk preference Stochastic dominance Subjective probability Uncertainty von Neumann and Morgenstern 

JEL Classifications

D8 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Mark J. Machina
    • 1
  • Michael Rothschild
    • 1
  1. 1.